MUD-Slinging Breakaway

Attorney Joe Bailey Allen, in the wake of a divorce 28 years ago, pulled up stakes in Waco and lit out for Houston, where he took an unglamorous role as a municipal utility district (MUD) specialist for the powerful Vinson & Elkins law firm. During the next quarter-century he would grow into the prime political power dispenser within an institution known in its heyday to friends and foes as "the second government of Texas."

Now Allen's career marriage to the 860-lawyer firm is on the rocks, and several generations of politicians nurtured at his knee wait intently to see what the fallout will be for both the kingmaker and his kingdom.

Allen and a group of colleagues are leaving V&E to form their own law firm. He is mum about the specifics of what some see as a historic parting of the ways.

"There are a lot of people saying a lot of things, and maybe in August we'll drink a good bottle of red wine and talk about some of those things," allows the recently turned-60 lawyer. "But I cannot do it now."

In the last year, Allen weathered a bout with cancer that resulted in surgery to remove a malignant jaw tumor and follow-up chemotherapy and radiation treatment. He says that midlife crisis apparently has ended successfully.

"Unless a whole bunch of doctors at M.D. Anderson are wrong, I'm in good health and I feel great, and it's time to have a new adventure in life."

For aspiring Houston politicos over the last two decades, an audience with Allen became an essential first step on the road to getting elected. As high priest of the V&E political action committee, Allen had duties that included maintaining what's known inside the firm as the Mystic Book, an electronic ledger documenting the mandatory contributions of the firm's attorneys to a deep pool of political money.

Come election time, he supervised the ladling out of those dollars to hundreds of candidates ranging from the president of the United States to judges, city councilmembers and state legislators. The contributions helped the firm gain influence in the government offices and courts where it would do business, win judgments and earn its massive profits.

The campaign cash became an almost incidental aspect of Allen's power. His role as a friend, mentor and strategist is equally valued.

"It isn't about the money," says Nancy Sims, veteran political consultant and publicist of Pierpont Communications. "It's about Joe's connections, and his great political mind. Because Joe is so strong in strategizing, he became an important resource for political campaigns, beyond just the dollars."

His municipal power as a lobbyist reached its high-water mark during the mayoral administration of Bob Lanier, but dwindled when Lee Brown took office in 1998. Allen's backing of Congressman Chris Bell's unsuccessful mayoral challenge to the incumbent in 2001 further chilled his influence at City Hall. Allen still swings a heavy political bat, having raised more than $200,000 for President George W. Bush as a "Bush Pioneer" and recently hosting an event for Congressman Tom DeLay.

Allen is technically still director of the V&E PAC and takes calls at his office in the firm's First City Tower headquarters, but he and three other attorneys remain there only as temporary prisoners of the firm's partnership rules. Allen, Jim Boone, Stephen Robinson and Lynne Humphries gave notice April 28 that they plan to form their own law firm: Allen, Boone & Humphries. They must remain at V&E an additional 90 days if the management so decrees. And it does.

"We've got to first look after the needs of our clients and make sure there's a smooth transition, and that's the process we're going through," says firm managing partner Joe C. Dilg, who denies reports that the breakup has been acrimonious.

"They've been good partners for a long time, and we wish them well going forward in what they want to do."

Asked whether there is bad blood between V&E management and his group, Allen comments, "That remains to be seen."

The departing partners head a section within the firm that deals primarily with municipal utility districts, a legal tool of developers to provide water and sewer services to new subdivisions outside the reach of municipalities. Every step in the life cycle of a MUD, from its incorporation to the sale of bonds to raise money for construction to its eventual absorption by an annexing city, requires intensive legal services. Dilg notes that MUD specialists probably have never been busier than now.

"Municipal finance practice is experiencing historic levels of activity due to low interest rates and a lot of construction of single-family residence building," explains the managing partner. "I think to the extent they ever wanted to form their own firm, this was probably the best time to do it."

A partner at another downtown firm says the MUDslingers chose an opportune moment to make their break.

"Times have been good for MUD district lawyers because there has been a tremendous housing boom out there on the prairie," says the attorney. This lawyer cites speculation that Allen and crew left because they felt they were not getting the respect and the money from V&E that they deserved.

Another downtown lawyer believes money is at the root of the breakup.

"It is widely believed that in good times like this, there's a possibility to make a ton of money, far more money than you can make as a partner at Vinson & Elkins.

"If everything is clicking and the single-family market is roaring, and there are a lot of bond issues, then through the economies of scale it works out pretty well. I'm confident that Joe B. and Boone and those guys would not say that's the only reason or even the primary reason they left. But it certainly had to be up there."

This same source offers a note of caution, questioning whether the single-family-home building boom around Houston can continue indefinitely. In a large firm, attorneys in different specialties are buffered from the periodic fluctuations in their practices. The Allen group may reap the benefits of a hot construction market now, "but only time will tell how wise the decision will look five years from now."

V&E has been dominant in the local MUD arena, thanks to Allen and colleagues. So when they set up their new shop in August, it will instantly become not only the new kid on the MUD block but also the local heavyweight. Several sources, including Dilg, describe the new venture as a "boutique law firm," meaning a small operation dealing in a specialized legal area. Allen indicates his ambitions go well beyond those implied limitations.

"Do you think 'boutique' describes me?" the hyperaggressive, sometimes blustery Allen asks with a laugh. "We are going to have a specialized public finance firm."

While Allen refuses to discuss motives, a source suggests that one contributing factor is Vinson & Elkins's well-documented problems with conflicts of interest between the firm and clients as well as various groups of attorneys within the organization.

"What you're going to hear, if they talk at all, is they are encountering a bunch of conflicts, and they'd be better off in their own practice," the source predicts.

As malpractice attorney Larry Doherty said in a Houston Press profile of the firm (see "Too Big for Its Riches?" December 7, 1995), V&E has long been skewered in local legal circles as the firm "that never met a conflict it didn't like."

"The truth of the matter," Doherty noted at the time, "is that kind of arrogance could not go unrewarded very long Texas is bigger than V&E."

Founded by legendary judge James A. Elkins in 1917, the firm dominated Houston's legal world for the first three quarters of the 20th century. Its power began sliding in the 1990s as a string of disgruntled clients accused the firm of looting their family estates. Enron's collapse last year was followed by the discovery of V&E's rubber-stamp approval of Enron executives creating questionable special-purpose business entities. That made the law firm, as well as the now bankrupt Arthur Andersen accounting house, a target of investigators. The departure of Allen and the MUD attorneys threatens to strip V&E of the last vestiges of its fabled local governmental influence.

At least initially, political observers predict the firm is likely to lose governmental finance business in the area.

Allen "has tremendous political clout and bipartisan respect, and he'll carry that with him to the new firm," says former V&E spokesman Joe Householder, now a political consultant with Varoga, Rice & Shalett. "Vinson & Elkins has people like Paul Stallings and others who, while not as well known to the general public, remain significant players. Nonetheless, the net gain goes to Allen, Boone & Humphries."

Nancy Sims predicts that V&E's local political profile will diminish.

"His departure will definitely weaken government interest in pursuing business with V&E for the moment," says Sims. As for Allen, she figures not much will change. "People will continue to seek his advice, and once elected, they will want to do business with him."